Total recall – a response 4

16 September 2010

Subsequent to the judgment handed down by Zondi J in the unreported case of Dolphin Whisper Trading 10 (Pty) Ltd v The Registrar of Deeds and Another (20645/08 [2009] [ZAWCHC] (31 March 2009), the Registrars at their annual conference resolved that where a registrar of deeds determines that there is a deviation from the section 25(2) plans, such deviation must be sanctioned by an order of court (see in this regard RCR 2 of 2009).

The said judgment and conference resolution have caused numerous conveyancers headaches, and holds severe financial implications for developers who have deviated from the initial section 25(2) plans.

In this article, further case law and more authority will be alluded to, to substantiate the fact that when a real right of extension is exercised, the extension registered in the deeds registry must strictly be in accordance with the section 25(2) plans, unless the deviation is sanctioned by a court of law.

C G van der Merwe in his book Sectional Titles, Share Blocks and Time Sharing on page 12 - 32 summarizes the position of "changed circumstances" as referred to in section 25(13) of the Act as follows:

"A developer, his successor in title or the body corporate in exercising the right of extension is obliged to erect and divide the building or buildings included in the extension into sections strictly in accordance with the documents submitted when the right was reserved. Due regard is taken of changed circumstances which would make strict compliance impracticable. The courts seem to be prepared to allow the developer to effect deviations on account of changes in market conditions. The rationale is that no developer would regard it as practicable to build units that are not saleable. An owner of a unit in the first phase who is prejudiced by the developer's (or body corporate's) failure to comply in this manner, may approach the court, whereupon the court may order proper compliance with the terms of the reservation, or grant such other relief, including damages, as it may deem fit." (my underlining)

Van der Merwe, furthermore also alludes to the fact that it will not be permissible to change parts of the common property into additional sections or even exclusive use areas (see at 12 - 32 para. 12.3.8).

In the case of SP and C Catering Investments (Pty) Ltd v Body Corporate of Waterfront Mews and Others 84/09 [2009] ZASCA 162 (30 November 2009) Hurt AJA described the purpose of section 25(13) as follows:

"The section is plainly designed to enable unit owners to enforce compliance by the developer with the specifications. It gives the developer an opportunity to justify non-compliance with his original specifications on the ground of 'changed circumstances' and no more. The concept that the legislator intended to give him an opportunity, in the face of a compliant by an aggrieved unit owner, effectively to obtain a variation of his registered real right to the detriment of the rights of other registered owners is ludicrous." (my underlining)

The Court also held that the developer had to carry out the extended phases "strictly in accordance with the documents referred to in section 25(2)" (see para 8 of the said judgment).

In the case of Knoetze v Saddlewood CC [2001] 1 ALL SA 42 SE it was held that financial considerations may bring about a change in circumstances, making strict compliance with the reservation as set out in the document filed in terms of section 25(2) impractical. However, only a court of law will be capable of sanctioning this change in circumstances.

For the past few years, it is practice to open a sectional title scheme consisting of two sections, merely being two sections with a floor area of approximately two square metres, and reserving a right of extension for the remainder of the land comprising the scheme. The real right of extension is thereafter subdivided, in terms of section 25(4)(b) of the Act, and sold to "co-developers". The purchasers of the subdivided real right of extension are not always aware of the fact, that when the right was reserved, the original developer had lodged the documents as per section 25(2), and that he/she, as successor in title of the developer, must strictly adhere thereto. Many of these successors in title would prefer to build a much bigger dwelling, which will not be permissible given that the extension must be exercised "strictly in accordance" with the section 25(2) documents.

Purchasers of such real rights of extension must be aware of the maxim caveat emptor (beware the purchaser).

"Section 25(13) requires a developer to comply 'strictly' with the documents referred to in section 25(2). These documents give content to his right of extension. He has no other right of extension and where changed circumstances are present he is not excused from compliance with the documents altogether but only from complying with them 'strictly'. To allow such an exercise of his right would in effect be to grant him a right of extension quite different from the right reserved. He would not only not be exercising his right of extension 'strictly' in accordance with the documents referred to in section 25(2) but he would also not be exercising the right reserved at all. Such a deviation is not sanctioned by the legislature and it follows that the appellants are entitled to an interdict." (my underlining)

Conclusion
Conveyancers and developers must take cognizance of the fact that when reserving a right of extension, the envisaged extension must be carefully anticipated as the eventual exercising of the right could result in costly litigation should there be a deviation from the section 25(2)(a) and (b) plans.

From a deeds registry perspective, registrars of deeds will compare the schedule indicating the estimated participation quotas of all the sections in the scheme after such section or sections have been added to the scheme (see section 25(2)(c)) with the participation quota sheet lodged with the opening of the register for the extension. Should there be more buildings, less buildings, or a vast difference in the floor area of the sections or sections being included in the scheme, the registrar of deeds will require that the "changed circumstances" be sanctioned by a court of law. Furthermore, a registrar of deeds will compare the section 25(2)(b) plan with the new sectional plan to determine whether the exclusive use areas as envisaged with the reservation has also been included, failing which the matter will not be capable of being registered.

Minor deviations in the floor area of a section can be sanctioned by the Registrar of Deeds, personally.